The Phenomenon of the Equity Premium Puzzle Assignment

The Phenomenon of the Equity Premium Puzzle - Assignment Example Myopic loss aversion is a behavioral finance approach used to explain the size of equity risk premium. Behavioral finance deviates from the standard economic theory and integrates the human psychology with economic theory. The concept of myopic loss aversion rests on two principals   It includes the cognitive and unconscious operations used by people to organize, evaluate and keep track of financial activities. This approach implies that people tend to make and evaluate decisions one at a time and then they place them in separate mental accounts rather than evaluate them in a broader context. In a financial perspective, this refers to how transactions are grouped both cross-sectionally (are securities evaluated one at a time or as portfolios) and inter-temporally (how often are portfolios evaluated). When this narrow evaluation of the decisions and outcomes take place, financial investors will tend to make short-term decisions rather than adopt long-term policies regarding their investments and evaluate their gains and losses frequently. â€Å"When we look at the historical record of investment returns, we find that the vast majority of long-term returns are derived from just seven percent of all trading months. The returns of the remaining ninety-three percent of the months on average are virtually zero†. It implies that the shorter the investment horizon, greater the chances that the investor will experience a loss in the value his portfolio. Moreover, if an investor has the risk-averse preferences then the time horizon over which he evaluates his portfolio also impacts his investment preferences. For example, stocks seem to be risky and yield fewer returns in the short run, while debt instrument is safer and seem to be profitable in short run. So if a risk inverse investor inspects his portfolio daily then he will find the bonds much more profitable and attractive as compared to stocks and will find the stock highly risky and yielding lower returns, because stock prices highly fluctuate up and down on daily basis and losses have a double effect on investor’s mind.

Michael Focault's The Order of Things Essay Example | Topics and Well Written Essays - 1250 words

Michael Focault's The Order of Things - Essay Example It was translated into English and published under the title The Order of Things: An Archaeology of the Human Sciences in 1970. The Order of Things brought Foucault to prominence as an intellectual figure in France. Foucault's critique of Renaissance values in 'Les mots et les choses' has been very influential to cultural history. The book opens with an extended discussion of Diego Velzquez's painting Las Meninas and its complex arrangement of sight-lines, hidden subject and appearance. Then it develops its central claim: that all periods of history have possessed certain underlying conditions of truth that constituted what was acceptable as, for example, scientific discourse. Foucault argues that these conditions of discourse have changed over time, in major and relatively sudden shifts, from one period to another. The first chapter 'Las Meninas' from The Order of Things: An Archaeology of Human Sciences has been dedicated to critical analysis on Diego Velazquez's painting Las Meninas (The Maids of Honor) is a 1656 painting by Diego Velzquez, the leading artist of the Spanish Golden Age. The work's complex and enigmatic composition raises questions about reality and illusion, and creates an uncertain relationship between the viewer and the figures depicted. In the 19th century Sir Thomas Lawrence called the work "the philosophy of art". Las Meninas shows a large room in the Madrid palace of King Philip IV of Spain, and presents several figures, most identifiable from the Spanish court, captured, in a particular moment. Some figures look out of the canvas towards the viewer, while others interact among themselves. "Rather than pursue to infinity a language inevitably inadequate to the visible fact, it would be better to say that Velazquez composed a picture; that in this picture he represented himself, in his studio or in a room of the Escurial, in the act of painting two figures whom the Infanta Margarita has come there to watch, together with an entourage of duennas, maids of honour, courtiers, and dwarfs; that we can attribute names to this group of people with great precision: tradition recognizes that here we have Dona Maria Agustina Sarmiente, over there Nieto, in the foreground Nicolaso Pertusato, an Italian jester. We could then add that the two personages serving as models to the painter are not visible, at least directly; but that we can see them in a mirror; and that they are, without any doubt, King Philip IV and his wife, Mariana."(Focault, p 4, 5) The young 'Infanta Margarita' is surrounded by her maids of honor, chaperone, bodyguard, two dwarfs and a dog. Just behind them, Velzquez portrays himself working at a large canvas. Velzquez looks outwards, beyond the pictorial space to where a viewer of the painting would stand. A mirror hangs in the background and reflects the upper bodies of the king and queen. The royal couple appears to be placed outside the picture space in a position similar to that of the viewer. A few critiques even suggested that they were being painted by the painter. Las Meninas is a pure manifestation of critical thinking, an important trait of modern philosophy. Although, Focault is considered a post modernist critic but his work echoes modern philosophy characteristics. 'The value of Valasquez's painting for Foucault lies in the fact that it introduces uncertainties in visual